Business investment and exports, the only way forward says CBI

Next year, 2012, must be the year the UK finally stops agonising about
rebalancing its economy and actually does so, said the head of the CBI in
his new year message.

CBI director general John Cridland said 2011 had been a year of 'disappointed expectations'Photo: GEOFF PUGH

By Emma Rowley and Angela Monaghan

6:00AM GMT 30 Dec 2011

A fundamental shift from debt-fuelled household and government spending towards business investment and exports is the only way to put growth on the right track, according to John Cridland, director-general of the business lobby group.

"There are no easy answers when it comes to securing future long-term growth," he said. "The hard graft of rebalancing is the only way it can be achieved, so it's time to stop talking about it and get on with it.

"2012 is going to be a hard road but if we are canny and act now to put in place solid economic foundations, we will be stronger and secure a better future for ourselves and our families."

The easiest way to rebalance is by "swimming with the tide", the CBI believes, primarily by taking advantage of trends such as the swelling middle classes in emerging economies, who can consume British services from finance to education. That means the UK must target high-growth economies such as Brazil, Russia, India and China.

Calls for Britain's ailing infrastructure to be updated, as well as digital growth and the diversification towards the renewable energy sector, would provide significant business investment opportunities, according to the CBI.

Mr Cridland said that to make up for the loss of public sector spending, the private sector would need to deliver £170bn of new investment over the next five years.

This rebalancing needs to go hand in hand with a determined effort to bring down the deficit – the annual shortfall in the Government's budget – to get past the pain as quickly as possible, the CBI argues. If not, the UK's debts will continue to grow and our trend growth-rate will remain low, it warns.

Under its "base scenario", the UK does rebalance. Consumer spending slows while net trade – the balance between imports and exports – and business investment both show a modest increase in their contribution to the country's overall growth, which should average 1.6pc until 2015.

However, the CBI said that the eurozone crisis poses the biggest threat to the UK rebalancing as roughly half of our exports go to Europe.

Trouble in the continent could slash our trend growth by more than half to just 0.7pc, it said.